4-13-09

The Eye of the Storm

Fred Hickey:

"This is a tough market to navigate. On the one hand the world economy is a mess and completely imbalanced. Half of the world is too dependent on exports (mostly Asia) and the other half (US and parts of Europe) is in a dream world believing that they can consume more than they can produce, can pile up almost unimaginably high debt levels and can live happily ever after."

"On the other hand, whenever the natural market forces begin to remedy this nightmarish state, governments step in to halt the corrective process, ultimately making matters worse and pushing the day of reckoning a little further on down the road. But in the meantime, stocks can rise from the inflationary push."

Can you feel it in the air...?

The mood is slowly changing to a more optimistic one.

Living in Florida as I do, you get your share of hurricanes. Thankfully, most of them miss us, but in 2004 it was a different story. I sat in my home during Hurricane Charlie and watched it tear up the town and turn out the lights.

The television showed in real time the hurricane moving closer and closer. I couldn't see what all the fuss was about... but then, BOOM. It was like being hit with a sledgehammer as the outer layers of the storm lashed into us.

Then it was gone, leaving devastation in its wake.

Then the surreal part comes; when you're sitting in the eye of the hurricane. It's perfectly calm all of a sudden and it's tempting to sit outside even. Relief sets in and your stomach unties itself.

But of course, the calm is short-lived. As the eye of the storm passes, the outer layers pass over and usually, they're more severe than the first assault.

We're in such an eye of the storm now- the greatest financial storm in history.

We'll get to the good news in a second but let me first be very clear about something I've concluded this week:

This is the coldest, most powerful, most sinister bear market ever.

Hurricane Andrew. Hurricane Katrina. Extinction-level events for those in its path.

It wants to kill us all- even those of us who embrace it by buying gold.

Remember: A bull market wants to go up with the LEAST amount of people on its back. A bear market wants to go down with the MOST amount of people on its back.

The bulls and bears use trickery to achieve this. Both of them do what people least expect right at the time when people had given up on them.

Until now, most people had written off this latest rally I had anticipated in this newsletter. Now, they're waking up to the idea.

The market action this last Thursday was instructive and shows me the bear is doing its job by catching everyone out. The market finished the last day of the week up nearly 250 points. Usually, there's a sell-off on the last day of the week because nervous traders don't want to have any open positions over the weekend in case of bad news that may come and it didn't happen this week, so that's a real positive.

As we go into earnings season, it won't be a clear path upwards, but I see a steady rise in the market from here. As it gathers steam, more and more people will say that the bear is dead and everything is okay now.

That's how we've been conditioned, right?

Any time in the past that there's been a financial crisis, the Fed steps in and makes it better. Before long everything is back to normal. Asian crisis 1998, 9/11, 2002 recession.

So people will expect the same this time. So far, it's a re-run of 1929 to 1932. The real damage came after the so-called great crash in 1929- when everyone thought it was over.

The bear is in charge, but he disguises himself as a bull. Right at the time when even I start to doubt he's a bear, he'll take off his mask and go for the final kill. The aim is to take the most people down.

Before that though, he'll have persuaded anyone who thought it was a no-brainer to buy gold in light of the Fed printing money to dump the yellow metal. The price of gold should now sink as the market rises. As I said, he wants to kill us all.

If investing was truly a no-brainer, everyone would be rich.

So, once again, I prepare to be the lonely crank who doesn't join in with the herd.

In the gold market on the other hand, the bull is in control. And he disguises himself as a bear to go up with the least amount of people.

There simply is no question that the Fed will ultimately cause rapid and dramatic inflation and gold will rise to over $2,000 an ounce. But in the meantime, look out below. Buying opportunities lie ahead. Would I sell gold then? No. That's precisely what the market wants.

Expect the unexpected... and bet on it!

Back in the 1970s there was a major correction in gold, just before gold went parabolic, and I'm wondering whether history is ready to repeat.

What I see ahead is a temporary stabilization in house prices this Summer. This could really spark a surge upwards, especially in banking stocks.

So what will ultimately spoil this party?

Unemployment. This is setting in heavily now and it's worse than the numbers appear on the surface.

You see, it all depends on your definition of 'unemployment' and surprise, surprise, the government's definition paints a rosier picture than reality...

The numbers don't include 'discouraged workers'- people who've been unemployed for over a year and have given up looking for work. The poor guy's still unemployed though!

Also, if you get made redundant from a full-time job and then get a part-time job (as it's all you can get!), then you don't count as unemployed. BUT, your income now sure makes you feel like you're unemployed!

So, is the government hiding the true unemployment figure? No, but they certainly don't publicize it. The real figure is a shocking 15.6% unemployment!

Meanwhile, I thought I'd review some things I'd mentioned before...

Cocoa. Since I mentioned this parabolic rise and that one could bet the price would go down, the price did indeed collapse so a tasty profit there. The world can turn without chocolate...

Oil is hovering around $50 despite all the people saying it was headed south to $25. It may go higher, but it's time to use 'gain-locks' on this- I spoke about that last time.

  Same for miners and drillers.

The yen fell and continues to fall since I mentioned the likeliness of this event.

Gold and silver- already discussed. Your nerves are about to be tested here, I feel.

Wheat and corn. Nicely up, but as in oil, time for gain-locks.

If I wanted to play this stock market rally I would look at bombed out financials- particularly if they've been guaranteed not to fail by the government. Some of these banks are now saying they don't need any more bail out money.

So, the adventure continues. Maybe soon, people won't be so frightened to open their 401k statements when they arrive in the mail. I wish I could tell them when that time comes that it's probably a false dawn and that this is merely a chance to get out of the bear's way.

Maybe you could do it for me?

Why not email everyone you know with this (thanks by the way if you've already done so!):

Simply copy and paste this into an email and send it to all your contacts:

"Hello,

I wanted to alert you about something that's affecting us all now and more importantly, in the near future.

Please pass this email on.

You don't need me to tell you the economy is in a mess, but what's worrying is the actions our Federal Reserve is taking to combat it: effectively printing money and ultimately making us poorer.

Now, there's nothing we can do about this of course except protect ourselves and the ones we care about.

And this is actually very simple and it won't cost anything- it's more about a rethink of what we do with our hard-earned money now.

I've discovered a newsletter called The League of Power. It's completely free, legitimate and will give you all you need to know. You can get it by filling out the below form.

Best regards,

Mark Patricks

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